A unit of Allstate Insurance Co. has introduced a fixed annuity that is tied to stock market performance and is aimed at luring conservative consumers to invest in equity markets.

Nebraska-based Lincoln Benefit Life Insurance Co. last month started marketing Savers Index, which pays a yield linked to the Standard & Poor's index of 500 stocks but guarantees no loss of principal.

Indexed annuities are a fairly new product designed to allow investors who typically would buy a fixed annuity to take part in equity market growth. Two other companies, Keyport Life Insurance Co., Boston, and mutual fund company Calvert Group, Bethesda, Md., offer similar products.

"There's a feeling on the part of investment programs that investors are missing the boat by not investing in equity markets, and that inflation is eating up their gains," said Kenneth Kehrer, a consultant based in Princeton, N.J.

A handful of banks have boarded the bandwagon. Huntington Bancshares Inc. sells Keyport's product. Several West Coast community banks are selling Savers Index. And the brokerage arm of First Alabama Bank, a unit of Regions Financial Corp., Montgomery, plans to offer it this month.

"You can tell the 50- to 60-year-old customers who still need growth in their portfolios, 'We're going to give you exposure to the stock market, and you can still sleep at night,' " said Jeffrey Finck, senior financial consultant at Mid Valley Bank, a $76 million-asset institution in Red Bluff, Calif.

Lincoln Benefit invests most of its product's funds in government bonds but also makes a small investment in one-year S&P call options. "The bonds help assure that we meet the guarantees; the call options generate the rate of return when the index is up," said David Behrens, vice president of sales at Lincoln Benefit.

For consumers, the biggest risk is of a down market for the length of the instrument. In such a case, they would wind up with their principal, plus interest on a part of the investment. Thus, they would probably have been better off with a standard fixed annuity.

But indexed annuities may be more trustworthy than some fixed annuities, Mr. Kehrer said.

Some insurers offer "teaser" rates, or slightly higher rates of return than most other fixed annuity issuers are offering, Mr. Kehrer said. Initially, insurers pass on more of the spread to the customer, but once the customer is locked in, the insurer keeps more of the spread.

The problem with these so-called "trust me" annuities is that customers have no way of knowing whether the better rate of return is a teaser or whether the insurer legitimately has better market performance or lower costs than other insurers.

But there is still an element of "trust me" in indexed annuity products, Mr. Kehrer said. The indexed annuities offered by Lincoln Benefit and by Keyport each guarantees principal and a minimum return of 3% on 90% of the principal at the end of the investment term.

However, the insurer reserves the right to reset the rate of return each year in a range of 60% to 90% of the S&P's growth. The grounds for changing the rate of return would be the interest rate environment or the cost of the bonds and options the company is buying, said Mr. Behrens of Lincoln Benefit.

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